What has Egypt fulfilled ahead of the IMF first review ?

The IMF will conduct semi-annual reviews in March and September of each year until the end of the program in September 2026 and will accordingly receive equal tranches worth $347 million.

Egypt has committed to a flexible currency exchange rate and flexible fuel prices, a gradual elimination of subsidies, and a greater role for the private sector.

It has also committed to expanding spendings on social safety programs as well as to a range of monetary and fiscal reforms.

The government had begun implementing structural reforms even before the December approval and has continued its steps over the past three months.

Here are the major measures implemented since December 2022:

Reducing state’s footprint in economy

The government has announced on February a list of 32 state-owned companies across 18 various economic activities to be listed or offered to strategic investors.

Two military owned companies – Wataniya for selling and distributing petroleum products and Safi for bottling water – are set to initiate the offering process on 15 March.

This comes within the framework of the country’s State Ownership Policy document that charts the map for the activity of the private sector over the next three years.

The document aims to raise the sector’s share in the local economic activity to 65 percent, up from 30 percent.

Moreover, Egypt has so far issued eight golden licences for investors who intend to establish strategic or national projects that aim to develop the country.

Flexible exchange rate

The Central Bank of Egypt (CBE) had already deprecated the Egyptian pound twice against the US dollar, trading at EGP 24.5 in the end of December down from EGP 15.7 in March 2022.

The pound has lost further ground since the beginning of January, trading currently at nearly EGP 31, according to the CBE official exchange rate.

Interest rates

In 2022, Egypt hiked its key interest rates by a total of eight percent (500 bps).

The next meeting of the CBE is set to be held at the end of March.

In accordance with the recommendations of the IMF, the CBE has handed the responsibility of the low-interest-rate initiative it has launched in recent years down to the Ministry of Finance.

Fuel subsidies index

Egypt raised fuel prices during March by 7-10 percent to fulfil its commitment.

The Automatic Pricing Committee raised on 2 March fuel prices for various octanes by EGP 0.75 to EGP 1 per litre, while keeping the price of diesel fixed.

Social protection packages

The government approved in March a package that includes an increase in salaries and pensions that will cost the state budget EGP 150 bln to $200 bln.

It has committed to expanding the support extended under the Takaful and Karama programme and ration cards.

The government also passed amendments to the income tax law that increase the personal income tax exemption, which provides relief to the middle-income class against the general increases in the prices of goods and services.

Financing sources

Egypt has a $17 billion financial gap.

The government has pledged to bridge this gap through securing loans from regional and global partners as well as from selling a number of state-owned assets.

Egypt successfully issued its first sovereign bonds “Islamic Sukuk”, which attracted $1.5 billion, to diversify its financial resources, especially the FX.

The government also committed to slowing down the implementation of public investment and national projects, particularly those requiring a US dollar liquidity, to reduce pressures on the foreign exchange market and to curb inflation.

Rising inflation

Egypt aims to curb inflation to seven percent by FY2024/2025.

Yet, due to the soaring inflation globally and the depreciation of the Egyptian pound, the headline annual inflation jumped to over 31 percent in February, while the core inflation leaped to over 40 percent, according to recent calculations published by CAPMAS and CBE.

Monetary and fiscal reforms

Under the program, the government has committed to attaining a primary surplus of 1.7 percent of GDP in current FY 2022/23, 2.1 percent in FY 2023/24 and 2.3 percent in FY 2024/25 and FY 2025/26.

The government aims to reduce the gross debt-to-GDP ratio by around 83 percent by FY 2026/27.

It must also reduce debt levels and increase the tax-to-GDP ratio by around 2 percent over the medium term. 

New tax measures will be implemented in FY2023/24 (starting July 2023) to increase tax revenues by 0.3 percent of the GDP.